Hungary falls from six week low ahead of central bank meeting

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Hungary falls from six week low ahead of central bank meeting

By Gergely Szakacs BUDAPEST, Sept 20 Reuters - Hungary's forint fell from a six week low because of Tuesday's central bank meeting, while regional stock markets were hammered as China Evergrande's debt crisis curbed appetite for riskier assets. At 0808 GMT the currency forint was 0.1% lower, recovering from an earlier fall of around 0.2%. The Czech crown, which had benefited so much from steepening of the central bank rate, was down 0.13% in early trade. The general negative market sentiment lifted the EURHUF exchange rate to the moving averages 50 - day and 100 - day in a much more substantial move than observed in the Czech Crown and the Polish zloty, brokerage Erste Investment said in a note. These levels could halt the FORINT's losses for the time being. Regional stock markets were all in the red as Warsaw stocks led losses with a 2.3% drop. The forint and the crown dominated the region with gains of some 3% each for the year as Central banks in Budapest and Prague started raising rates in June to fight growing inflation pressure in the aftermath of the pandemic. The Hungary central bank meets on Tuesday to discuss interest rates amid high uncertainty over the size of its next rate move, following a combined 90 basis points worth of hikes in its base rate over the past three months to 1.5%. Economists polled by Reuters expect the bank to increase its base rate by 25 basis points to 1.75% on Tuesday. A currency dealer in Budapest said the Evergrande debt crisis could also complicate Wednesday's decision as the weakness of the forint would justify tighter policy, while a potentially shakier world economy could support the case for continuing quantitative easing. Even though the cycle of rate hikes is likely to continue, after with smaller steps, their precise size is unknown, Erste Group stated in a note. In addition, it will be interesting to see the updated inflation forecasts of the national bank, which can further inform the planned course for the near future The zloty, which has underperformed the crown and the forint in the past months over the key court ruling regarding inflation, eased 0.2% and could face further pressure from a Polish central bank's dovish decision due later this week. The decision of the European Commission, which has for the precedence on this week Wednesday, decided that the supremacy of Polish law over EU law is a source of uncertainty, Bank Millennium said in a note. We expect continued increased pressure in the Zloty until then.